In a business context, reputational risk relates to how people perceive a given business, or more specifically, the range of potential perceptions. The concept of reputational risk is understood, and most financial institutions and businesses have an approach for developing a perspective on their degree of reputation risk.
Conventional techniques for assessing risk are based on theoretical or qualitative methodologies. The conventional techniques excessively emphasize managerial judgment. Most methodologies lack a high degree of analytical rigor. Risk tolerance is often established on an ad hoc basis, with limited consistency across operations or business units. Furthermore, reputation risk tends to be viewed as a one dimensional issue associated with discrete actions taken by a target company. A lack of integration with respect to all the various inputs into the decision making processes results in ill-conceived and incomplete managerial decisions. As a result, companies struggle to identify pragmatic solutions and outcomes for mitigating reputational risk.